By Nick Miroff
Washington Post Staff Writer
Friday, October 17, 2008
Freewheeling American capitalism may be falling out of fashion on Wall Street, but in the western suburbs of Northern Virginia, it is driving one of the greatest home-buying sprees the region has ever seen.
The epicenter of the boom is Prince William County, where enterprising investors are scavenging the wreckage of the housing bust at a furious pace. Last month, 1,116 homes were sold in the county, a 235 percent increase from the same period last year and more than in any other September on record, according to the Northern Virginia Association of Realtors.
The buying frenzy is the silver lining of a staggering decline in home values. With banks choking on a glut of empty, foreclosed properties, the median sale price for detached single-family houses in Prince William plunged 41 percent in the past year, from $405,000 to $239,900. In September, 118 homes in the county sold for less than $100,000, and many foreclosed townhouses sold for less than $70,000. One three-bedroom Manassas townhouse recently sold for $43,500, even though it was assessed at $273,100 in 2007.
"Prince William County is a fire sale," said Joey Remondino, a "ridiculously busy" real estate agent with StoneHouse Realty in Manassas. "People are looking for amazing deals, and I'm writing offers as fast as I can," he said.
Nowhere else in the region has the drop in prices and surge in sales been so extreme. Home buying in the county gained momentum over the summer but shot upward last month, when more detached single-family homes were sold in Prince William (579) than in Fairfax County (541), which has three times as many houses.
Sales of detached single-family houses in Fairfax County were up 71 percent last month from September 2007 and the median price was down 24 percent. In Loudoun County, sales were up 47 percent and the median sale price declined 17 percent. The housing markets in Arlington County and Alexandria were generally more stable.
Sales in the Maryland suburbs was comparatively subdued as well.
In Prince William, the turnover of thousands of homes might have implications that extend beyond the real estate market. Neighborhoods with high numbers of foreclosures are likely to become more transient as investors convert properties into rental units. In other areas, families with enough cash and good credit will have access to neighborhoods once deemed unaffordable. And homeowners who bought at or near the market peak in 2005 may be stuck making monthly payments two or three times as high as their neighbors are making for comparable houses.
"I think the values will come back. A lot of people still see Prince William County as a good investment," said Supervisor W.S. "Wally" Covington III (R-Brentsville). "I'm hearing that a lot of young military families are buying into the county."
Much of the dealmaking has been led by investors, according to real estate agents who specialize in foreclosed properties. Doctors, lawyers, engineers -- anyone with good credit and disposable cash -- are becoming part of a burgeoning class of landlords. Some are forming business partnerships to acquire properties; others are realizing that they can buy cheap homes and rent them out for more than the monthly mortgage payments.
Some savvy customers are paying cash to beat out bidders who offer more but need financing, real estate agents said. And because investors have so many properties to chose from, few are willing to look at properties that are not bank-owned. Even with the surge in sales, there were more than 5,000 active listings in Prince William last month, down from 6,500 a year earlier.
Because of the oversupply, banks are likely to continue slashing prices, dragging down property values for nearby homeowners, in order to maintain a competitive advantage over other sellers. But the competition hurts banks as much as sellers by depressing prices negotiated for short sales. In a short sale, the lender does not foreclose but agrees to accept the proceeds of a sale made for less than the amount of the loan.
For buyers, the dizzying pool of repossessed property is not likely to dry up anytime soon.
In a well-kept subdivision on the outskirts of Manassas this week, Tracy Comstock took her client, Chris James, to view a foreclosed townhouse during his lunch break. The weeds in the back yard were chest-high, but the 2003 home needed little more than a thorough vacuuming to be ready for the rental market.
"Some of these places are so run-down, you walk in and walk right out," James, a mortgage underwriter and Clifton resident, said while inspecting the kitchen. The floor was clean, the appliances almost new. "This one is a lot better than most of the stuff we've seen," James said.
In May, James bought his first investment property in Manassas, an early 1990s townhouse he picked up for $168,000, more than $100,000 less than its assessed value. He quickly rented it for several hundred dollars more a month than his mortgage payments. The family that moved in had lost their home to foreclosure, he said, and could rent his place for almost half of what they had been spending on mortgage payments.
Bargain-hunting investors are the best hope for stabilizing foreclosure-ravaged neighborhoods, he said.
"There are all these decent homes out there," James said. "If we have the ability to purchase them and rent them to families at affordable prices, it's a good thing for the community that they're not just sitting here empty."
James said he avoids short-sale properties, but Comstock said she has other clients who are willing to give them a look. "With a short sale, the property is usually in better condition because the person is still living there," she said. "But the bank may take five to six months" to approve the sale.
In the new market, Comstock said, she and other real estate agents have learned to navigate the bureaucracy of large banks on behalf of clients, and the process requires vast stores of patience. Sometimes a bank's foreclosure department will repossess a home just as its loss-mitigation department is nearing a deal for a short sale, she said, explaining that the two departments may be located in different states. "I've had them terminate a contact by mistake," said Comstock, of Annandale-based Mega Realty and Investments.
The steep drop in prices has shattered the old psychology about asking prices on homes. With so many houses on the market and so many buyers on the hunt, some banks are aggressively underpricing homes to elicit multiple offers.
"Prices are low enough that it's an auctionlike competition when you go bidding for homes," said Maribel Alvarez, who specializes in foreclosures and short sales in Prince William. "Investors are purchasing low-end homes, so it's becoming harder and harder for first-time home buyers because banks are looking for 20 to 30 percent down."
Prince William is slated to receive several million dollars in foreclosure assistance from the federal government in the next few months, but short of a government foreclosure freeze, additional bank-owned homes will hit the market.
There were 844 foreclosures in the county last month, land records show, up from 256 a year before and 40 in 2006.
With recession fears running high, real estate agents are encouraged by the market but urging caution.
"I think more people have come to the realization that this could be the bottom, and now's the time to buy something while prices are low," said Keith Elliott Jr., a real estate agent with RE/Max Olympic in Haymarket. "The problem is you have to think long term."
He added, "If you're going to be in the home for five to 10 years or longer, you'll be fine."